In some ways the housing market has resembled a drunk standing at the bar in some back-street boozer.

With every drink he has, people think he must soon stagger and tumble over. But he doesn't. He keeps drinking and he remains standing. He stays up for so long that eventually people decide they were wrong to think he would fall over.

But then, just as they decide he will never fall, he takes the last drink and finally tumbles to the ground.

What brought this analogy to mind was a recent poll of economists saying that they thought house prices were sustainable at the current level. A year ago they said prices were unsustainable. Given that the average price has gone up by 10% since then, this strikes me as a bit odd.

These economists, of course, didn't spot the January increase in interest rates coming, or last week's sharp fall in inflation, or last week's sharp fall in retail sales, so maybe we shouldn't worry about what they are saying.

But the housing market, particularly in London and the south-east, where prices have jumped by far more than in the rest of the country - by up to 30% in some prime central London areas - is now defying belief. How long can it go on?

The answer may be starting to appear. There are signs the market is starting to wobble. This is not just because house prices have trebled in the past decade, stretching affordability further and further, and pricing many first-time buyers out of the market. The reason, in all probability, is that interest rates have risen to their highest in more than five years and may yet rise further.

At this point I must admit that I have been wrong on house prices for a while. I thought their gravity-defying rise would run out of steam a couple of years ago. In some senses it did - in 2005 house price inflation slowed from more than 20% to zero. I thought it would go negative and prices would fall. That turned out to be wrong.

The Bank of England cut interest rates by a quarter percentage point, to 4.5%, in August of that year and long-term interest rates, which govern fixed mortgage rates, tumbled to a 50-year low. All of which gave the market another fillip and it recovered strongly last year, in line with other asset prices.

Off the peak

But just because the property market recovered last year, it does not mean that it can go on rising forever or is no longer overvalued.

And now the Bank is turning the screws with higher interest rates. The governor, Mervyn King, said last week that he hoped higher rates would slow the market down to low single-figure rates of increase, although he doesn't want them to fall.

Higher rates are hitting demand. Recent Bank of England figures showed a fall in new mortgage approvals - widely considered as a good indicator of where prices may be going - by 5% in December from a year earlier. That is the biggest drop for 18 months.

The Nationwide and Halifax indices for January indicated that house price annual inflation may have peaked at 10% and be starting to fade.

Last week the Royal Institution of Chartered Surveyors said house prices were rising at their slowest pace since June. Demand, it said, was dropping away and would continue to do so because of high prices and interest rates. Prices were holding up only because the number of properties being offered for sale was low.

In the last downturn, in 2005, new buyer inquiries fell first, just as they are doing now. The wobble is on. And supply may soon increase as sellers rush to beat the introduction of home information packs in the summer.

And the latest index from the website Rightmove, out this morning, shows the slowest rise in average asking prices for five years. Asking-price inflation fell to 11%, the lowest for 18 months.

Even the London market, flooded with billions of pounds of City bonuses, is slowing. Rightmove said the "shock" rate rise in January had an immediate impact and the market was now highly sensitive to interest rates.

So are rates going to go up again? Financial markets are certainly pricing in another rise and last week's inflation report from the Bank hinted that another hike may be on the cards.

In my view, though, a rise is not a done deal. Inflation has fallen back and the latest figures showed retail sales were very weak in January. Pay deals have been creeping up but not alarmingly so and probably not enough to push up inflation. The recent surge in inflation was temporary and is fading. The strong pound is putting downward pressure on import prices.

And will the housing market merely slow down or go into reverse? This is difficult to say but with immigration still high, employment at record levels and the economy humming along nicely, a meltdown looks unlikely. Buy-to-let demand seems still strong in spite of falling rental yields.

Housebuilding remains at low levels. Government figures last week showed completions rose only 0.5% last year to 160,000 - well short of the 209,000 the government thinks are needed every year just to keep pace with growth in the number of households.

But Danny Gabay, head of Fathom Consulting, says falling inflation this year is likely to push real interest rates up sharply to levels not seen for many years, something that could squeeze the housing market. He also thinks falling rental yields will reduce the attraction of buy-to-let.

"Coming on top of a significantly higher debt burden, this year should provide the housing market with its sternest test in many years," he says. "We retain our view that eventually the excess valuations embodied in house prices will bring about a correction in expectations and hence prices."

It is worth reflecting again, after a decade of surging house prices, what it all means. We do not get richer as a society from rising house prices. We merely transfer a burden to future generations who have to pay more for their houses. We shut out the have-nots who cannot tap their parents for a deposit. We lock in a permanent underclass who have no hope of ever getting on to the property ladder.

Need this have happened? No. Residential property in Britain jumped by £410bn in value last year. Only about 2% of that gain was taxed by stamp duty or inheritance tax. Would prices have risen so far so fast if land values were taxed more? No.

The discussion of land value tax, which has been around since the days of Adam Smith and David Ricardo, is gaining ground again as people reflect on the absurdities of the housing boom.

Next week sees the launch of an edited and abridged version of the classic 1879 work by the American economist Henry George, Progress and Poverty*. George is widely seen as the father of land value taxation and his ideas are as relevant today as they were in the aftermath of the US civil war.